Central government must take the lead on China's hukou reform

Hu Shuli says to speed up progress, the high costs of instituting change cannot fall on local governments alone and must be shared by Beijing

PUBLISHED : Thursday, 08 August, 2013, 12:00am
UPDATED : Thursday, 08 August, 2013, 3:19am

Come autumn, the government will consider a series of major reforms, including household registration reform. The reform, which is closely linked to urbanisation, involves people's land, welfare and a host of other issues, and progress has been slow.

In the face of China's declining growth potential, a shrinking "demographic dividend", and growing social tensions, changing the dual rural-urban social structure is the way to effectively move human resources to areas and regions where production is more efficient. At the same time, it accelerates the country's switch to a new pattern of economic growth so as to prevent the country falling into the "middle-income trap".

Therefore, household registration reform is a major step China must take.

The household registration system is embedded in China's social system. Established in 1958, it was intended not only to be a community management tool, but also intertwines with many social welfare issues unique to cities.

With the large-scale movement of population since the reform and opening up of China began, the function of the household registration system in terms of community management has been weakening. At the same time, a welfare system for city dwellers led by local governments has taken shape in the past decade, which has further widened the gulf between urban and rural households.

Reform should focus on decoupling social welfare from household registration and building a system to deal with relevant welfare issues according to people's residential addresses. To this end, the government should promote equal access to basic public services while deepening reforms for social security.

However, to date, the central government is still only responsible for arranging for reforms in principle while the power to implement them has been left to local governments.

The plan for household registration reform in small towns was tabled for discussion as early as 2001, but has never been carried out fully. Even since a 2011 report called for categorical implementation of the reform, limited progress has been made.

In June this year, the National Development and Reform Commission reaffirmed the steps to carry out household registration reform. They included scrapping the restrictions on household registration in small towns and cities, lifting such restrictions in medium-sized cities, and gradually removing those in big cities, as well as reasonably setting out requirements for huko u registration in the metropolises.

This step-by-step approach is clear, but would be hard to implement if local governments continued to selectively make use of it. In fact, local governments should not carry out the reform or bear the costs alone. Central government should take the lead.

Admittedly, the reform comes with high costs. People with the means to buy a home and invest, or were regarded as talent, did receive "fast track" treatment if they wished to shift their hukou to the city. But this clearly did not satisfy the criteria for equal treatment.

The practice of allowing farmers to trade off their land for urban household registrations was adopted in many cities, but was eventually called off as the farmers' interests were hurt.

Scholars estimate the cost of urbanising rural residents at about 100,000 yuan (HK$125,000) per case. Professor Chan Kam-wing reckons that, if the reform can be completed in 15 years, the cost each year would be one-fifth of the cost of hosting the Beijing Olympics. The government could well afford that amount.

Currently, local governments are bearing most of the cost of the reform, which is why progress has been slow.

One source said the authorities are considering re-launching this year the shelved residence permit system. This system classifies residential rights into "national" and "city" levels. Compulsory education and other basic public services would be provided for all permanent residents and migrants in a city.

This is only a temporary arrangement, but it implies that the central government might take up part of the cost.

Undoubtedly, the central and local governments should, in the future, share the costs of reforms, with the central government responsible for most of the public service spending. In practice, it would be reasonable to phase in reform measures according to their respective responsibilities.

The government might want to kick-start reform in small towns. Yet in the past, the metropolises had been the ones to draw migrants while local governments elsewhere failed to lure people to live and work in the smaller cities.

The situation should be tackled in two ways. First, small-to medium-sized cities should be made more attractive, while the big cities should grant household status to residents with stable jobs.

The government should also speed up reforms such as land reform to raise agricultural productivity. All these require early moves by the central government.

Reforms should be carried out in stages, with the ultimate goal of abolishing the existing household registration system. When this day comes, the people will have their complete and equal rights to reside and migrate freely - once a basic civil right provided under China's constitution.

This article is provided by Caixin Media, and the Chinese version of it was first published in Century Weekly magazine. www.caixin.com